OPINION BY JUSTICE LAWRENCE L. KOONTZ, JR.
FROM THE CIRCUIT COURT OF THE CITY OF PORTSMOUTH

In this appeal, we consider whether the trial
court properly ruled that purchasers of real property could not
recover under a claim of breach of contract against the
inspection company for failure to provide an adequate termite and
moisture damage report on behalf of the seller as required as a
condition of the sale of the property.

Under well-settled principles, we recount only
those facts necessary to our resolution of the appeal. On January
3, 1994, Kenneth R. Ash, Sr. and Joyce A. Ash (the Ashes)
completed the purchase of a home in Portsmouth. The contract of
sale required the Ashes to take possession of the home "as
is." However, as a condition of the sale, the seller agreed
to provide the Ashes with an approved VA/FHA wood destroying
insect report from a licensed pest control operator prior to
Settlement Date showing the Property’s principal dwelling and
garage to be free of visible wood destroying insect infestation
with no visible unrepaired damage from said infestation. Said
report shall also indicate that readily accessible areas of the
foundation and understructure including crawl space, sills,
joists, subflooring and substructure support timbers to be free
of standing water and/or visible moisture damage. Cost of
inspection and required treatment and repairs shall be paid by
Seller.

The seller contracted with All Star Lawn and
Pest Control, Inc. (All Star) to provide this inspection report.
Jeffrey C. Stuart, owner of All Star and a licensed pest control
inspector, conducted an inspection of the home on December 18,
1993 and completed a standard form reporting the condition of the
home. In that report, Stuart noted that he had found and repaired
existing moisture damage in two locations outside the home.

Section 7 of the form Stuart used to make his
report included a pre-printed statement that the "[a]ttic,
interior of walls, under floor coverings and behind
appliances" were inaccessible areas and obstructions and,
thus, were not subject to inspection. In addition to the areas
listed in the printed portion of section 7, a handwritten
notation made by Stuart indicated that areas of the "Crawl
Space – Behind Air Ducts" were also inaccessible.

Section 11 of the form consisted of four
disclosures made by All Star, the first three of which are
relevant to this appeal:

A. The inspection covered the readily
accessible areas of the property, including attics and crawl
spaces which permit entry. Special attention was given to those
accessible areas which experience has shown to be particularly
susceptible to attack by wood destroying insects. Probing and/or
sounding of those areas and other visible accessible wood members
showing evidence of infestation was performed.

B. The inspection did not include areas which
were obstructed or inaccessible at the time of inspection

. . . .

C. This is not a structural damage report.
Neither is this a warranty as to absence of wood destroying
insects.

Section 10 of the form provided space for the
inspector to make additional comments. In that section, Stuart
noted that there was evidence of treated and repaired termite
damage, but did not identify the location where this was
observed. He further indicated that there was "no visible
structural moisture damage in crawl space." Stuart charged
the seller $1,010 for his services, which included a $35 fee for
the inspection and $975 for repairing and repainting the areas
where unrepaired moisture damage had been observed.

The crawl space was 18 inches in height.
Portions of it were obstructed by sheet metal air ducts suspended
between the floor joists and the ground. Stuart subsequently
testified that these areas were inaccessible to him because
"I’m six-one and at the time I was 260 pounds." Stuart
further testified that he attempted to see beyond the air ducts
and tested the accessible area by probing the wood with a claw
hammer.

Stuart conceded that he was able to get 10 feet
into the crawl space, and that he attempted to look beyond the
air ducts using a flashlight. He maintained that he did not
observe any unrepaired moisture or termite damage anywhere in the
crawl space. The Ashes introduced a photograph of the area of the
crawl space in front of the air ducts that shows a screwdriver
pressed into a floor joist as a probe to establish the existence
of moisture damage.

The Ashes signed the purchasers’
acknowledgement at the bottom of the form on the day of
settlement at the office of the closing attorney. At trial,
Kenneth Ash testified that he had "no recollection" of
reading All Star’s report at closing, saying "[w]e were just
told [to] sign the papers. We [were] going to be here all night
if you had to read everyone of them." Joyce Ash testified
that she would not have signed the report if she "had been
told there was anything wrong with it."

In September 1994, the Ashes employed Stuart M.
Zenzel, a civil engineer and licensed pest control inspector, to
reinspect the home. Zenzel testified that upon entering the crawl
space he was able to observe unrepaired moisture damage in the
area in front of the air ducts. This was the area that Stuart had
conceded he had been able to enter and inspect at the time of his
inspection. Zenzel, who is of a slighter build than Stuart, was
able to move beyond the air ducts to the back areas of the crawl
space and discovered significant termite and moisture damage in
those areas. Zenzel further testified that all of the damage he
discovered was not of recent origin and would have been visible
at the time of Stuart’s inspection.

As a result of Zenzel’s report, the Ashes
contracted with Wright Construction Company, Inc. for a
structural evaluation and estimate for cost of repairs to the
home. Joseph A. Fosnock, an estimator for Wright Construction,
confirmed the existence of the damage discovered by Zenzel and
estimated the cost of repair at $16,900.

On January 23, 1995, the Ashes filed a motion
for judgment against All Star seeking damages of $18,500. In that
pleading, the Ashes alleged that they were third-party
beneficiaries of the contract between the seller and All Star.

The matter was heard by the trial court in a
bench trial on September 29, 1997. At the conclusion of all the
evidence, the trial court ruled that All Star’s report
"clearly indicated [Stuart] couldn’t get to every place,
that every place was not read[ily] accessible." Accordingly,
the court determined that the Ashes were on notice that the
report was incomplete and could have required a further
inspection. Noting that "[c]aveat emptor still applies in
Virginia," the court entered judgment in favor of All Star.
We awarded the Ashes an appeal.

We begin by noting that although All Star
initially contested the Ashes’ claim of being third-party
beneficiaries of the contract between the seller and All Star,
that issue was not raised at trial. During oral argument on
appeal, All Star conceded that it did not challenge that
assertion at trial or assign cross-error for purposes of raising
the issue on appeal. Accordingly, for purposes of this appeal, we
accept that the Ashes were intended third-party beneficiaries of
the contract.

The Ashes assert that the trial court erred in
ruling that All Star could insulate itself from liability by
disclaiming on the report that certain areas were accessible. In
conjunction with this argument, the Ashes further assert that the
trial court erred in construing the statements in the report in
favor of All Star.

We agree with the Ashes that merely making a
broad and generalized disclaimer on a termite inspection report
following a casual or defective inspection does not automatically
insulate the inspector from contract liability. To hold otherwise
would render the report useless. The inspector, in preparing the
report, undertakes the obligation to report clearly and
effectively the existence of damage to the structure inspected. SeeBaird v. Dodson Bros. Exterminating, 217 Va. 745, 749, 232
S.E.2d 770, 773 (1977). Inherent in that obligation is the
corresponding duty of the inspector to explain clearly and
effectively any impediments encountered in making a thorough
inspection through the use of clear disclaimers and disclosure of
his failure to inspect specific areas of the structure. Where
this is done, the inspector will be insulated from liability.
However, the evidence presented in this record does not support
the trial court’s judgment that an adequate disclosure was made
in this case.

The evidence clearly showed that the area
behind the air ducts in the crawl space was not
"inaccessible" in the same sense as other areas
excluded from the report, such as interior walls and areas
beneath permanent floor coverings that are not traditionally
subject to inspection. These latter areas are
"inaccessible" for visual and physical inspection
because access to them would require structural alterations. By
contrast, here the sole cause of the area behind the air ducts
being inaccessible was, as Stuart conceded, that his large
physical size prohibited him from going over or under the air
ducts. At best, Stuart’s disclaimer was ambiguous. At worst, it
was misleading. In either case, the disclaimer did not
effectively explain the circumstances surrounding Stuart’s
limited inspection or give notice to the purchasers of the
property that a thorough inspection of the area would not
otherwise require structural alterations.

Moreover, while the report states that there
was "no visible structural moisture damage in [the] crawl
space," the evidence at trial clearly showed that unrepaired
damage was readily apparent in the area of the crawl space
accessible to Stuart. Thus, notwithstanding his disclaimer, he
simply failed in his contractual obligation to discover and
disclose the unrepaired damage in the accessible area of the
crawl space. Accordingly, the evidence in this particular case
does not support the trial court’s conclusion that All Star
complied with its contractual obligations. Code
Sect. 8.01-680.

For these reasons, we will reverse the trial
court’s judgment, and, because the trial court did not reach the
issue of damages, remand for further proceedings consistent with
this opinion.[1]

Reversed and remanded.

FOOTNOTES:

[1]Because of our holding on the issue
addressed, we do not address the other issues raised by the Ashes
in this appeal.